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UAE’s Lulu Retail Holdings Plc’s shares closed flat in debut trading on Thursday after its blockbuster Abu Dhabi IPO-- upsized in the face of enthusiastic demand--raised $1.72 billion.
Shares opened at 2.04 dirhams ($0.55), rising to session high of AED 2.05 before dropping 3% to a low of AED 1.99. It later closed unchanged at AED 2.04.
Over 247 million shares changed hands in 8,519 trades while turnover topped AED 500 million, according to LSEG data.
The IPO saw demand of above AED 135 billion from local and foreign investors alike and was oversubscribed by more than 25 times.
The oversubscription didn’t translate to secondary demand on listing day, said Vijay Valecha, Chief Investment Officer, Century Financial.
“In the past, UAE IPOs have seen strong performance on listing day, offering substantial returns. This past success may have shaped investor psychology, leading to anticipation of a possible price hike and subsequent opportunity to profit-book. When Lulu’s share price did not see an immediate jump in price, a few retailers may have likely closed their positions, avoiding the potential of further losses, explaining today’s low of AED 1.99.”
The hypermarket operator, with over 240 stores across the GCC, counts prominent regional sovereign wealth funds, including Bahrain Mumtalakat Holding Company Co., Emirates International Investment Company LLC and Oman Investment Authority among cornerstone investors.
"Lulu’s lacklustre debut despite strong subscription numbers during IPO could be a result of investors thinking the company was broadly fairly valued," said Nishit Lakhotia, head of research at Bahrain’s Sico Bank.
Lulu’s peer-- albeit on a much smaller scale--supermarket operator Spinneys raised $375.7 million in an IPO in May this year, positioning its offer price at the top end of the range at AED 1.53. Its stock had a modest debut on the Dubai Financial Market closing at AED 1.60. Today, it is trading mostly flat around the offer price, according to LSEG data.
The example of Spinneys may have tweaked investor behaviour, adding caution to the prior trend of first-day profits seen in UAE listings, added Valecha.
Earlier on Thursday, Lulu appointed BHM Capital Financial Services as a liquidity provider for its shares on ADX to “provide greater price stability and ensuring adequate trading volumes at any given price level”.
Incidentally, BHM Capital is the liquidity provider for Spinneys’ shares listed on the DFM.
Future moves
Lakhotia said any major rally in Lulu’s stock in the near term is unlikely unless results are strong.
“Management has given a strong guidance for the company during its roadshow and the future of the stock price movement will depend on if they meet or exceed their guidance.”
Valecha said it is important to understand that Lulu’s fundamentals are strong. He said the company’s EBITDA margin has consistently improved over the years from 9.7% in 2021 to 10.2% in 2022, 10.4% in 2023 and finally posting 10.1% in H1 2024.
“Lulu’s CEO, Yusuff Ali quite recently stated that he expects the company’s net profit margin to reach 5% in the near future from 2.6% in 2023. On margin improvement and strong fundamental growth actualising, investors could possibly see share price appreciation in the future,” said Valecha.
(Reporting by Brinda Darasha; editing by Seban Scaria)
